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Co-op Bank holds fast to ethical values

Jun 24

Written by:
24/06/2013 08:16  RssIcon

Editor Rob Harrison gives his view on the crisis engulfing the Co-op Bank

The recently-discovered hole in the Co-op Bank's balance sheet has led to feverish speculation in the press about its future. Will it need a government bailout muses the Telegraph? Or perhaps it will be forced to abandon its ethics say others in the Guardian.

The first point to make is that everything in the response from the Co-op Group management indicates that they are going to do their best to hang on to the ethical values that have made it such a distinctive – and indeed world-leading – ethical pioneer. Despite their proposals to sell shares on the open market to raise capital they insist that the Group plans to retain a majority share thus maintaining their ethical bedrock through the democratic membership system.

The second point to make is that, even if the minority stake is bought by crazed profit-maximising institutional shareholders, they can see that the bulk of value in the brand lies in its distinctive ethical offering and its erstwhile loyal and ethical client base. Walking away from these values would be a very poor commercial decision.

The fact that the Co-op Group is proposing to use its own funds for a key part of the capital-raising plan is also encouraging both for customers and ethical campaigners alike. It shows how they value the Bank as part of the wider Group and that they are willing to stand behind it if necessary.

It is of course unfortunate that some small investors will have to take a hit with this arrangement, but it is probably right that they should do so.  The permanent interest bearing shares they held offered higher rates of interest precisely because there was a risk of loss.  The fact that the Group are also putting up some of their own money into the proposed bailout pot makes the arrangement feel - ethically - about right.

Lastly, the Bank is more likely to hold onto its ethics if people keep up the pressure for it to do so. The first stirrings of such activities appeared in a petition recently asking the Group to plan to a re-mutualisation of the Bank as soon as possible.

Of course it is very early in the process to be certain how it will all play out. But at the moment the signs are good for ethical consumers and its ethiscore remains at a passable 7.5. It is disappointing, but not entirely surprising, to discover that mutuals are as capable of making stupid decisions as profit-seeking banks. But in 2013 as well as 2008, it still looks like mutuals in general will come out of the financial crisis looking slightly less stupid than most.

A more detailed article will appear in the September/October 2013 issue of Ethical Consumer magazine.

Read more about banks in our sector report on the banking industry.




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